Decelerating economic growth and the increased cost of compliance in China both have contributed to lower than expected travel and expense (T&E) spending in 2014. Though business leaders had predicted 4.3% growth this year, business travel spending actually grew by 1.6% this year-to-date. Although mindful of the challenges ahead, business leaders and travel managers remain optimistic and still expect to grow their T&E budgets in 2015 by 3.5% on average.
These findings were reported within the American Express Business Travel 2014 China Business Travel Survey (the Barometer) during the tenth annual China Business Travel Forum (CBTF), held in Shanghai. The Barometer is an annual report detailing the current status of, as well as forecasts for, the China business travel market. The 2014 Barometer surveyed executives from 230 companies with more than 100 employees each. The organizations are located in major economic areas in China, such as Shanghai, Beijing, Guangzhou, Shenzhen and Wuhan. Eighty two percent of these organizations were Chinese owned, and the rest were joint ventures or wholly owned foreign enterprises.
According to the Barometer, fewer organizations (34%) plan to increase T&E budgets in 2015, compared with 2014 (40%) and 2013 (49%). Larger organizations seem to be more conservative than smaller ones. On average, small organizations, characterized as having up to 200 employees, anticipate an increase in their T&E expenditure of 5%, versus 2.5% for the largest organizations.
International travel growing in popularity
The number of employees within organizations who are travelling for business appears to be increasing. According to the Barometer, 38% of the employees of an average organization have traveled on business this year, versus 33% in 2013 and 28% in 2012. Not only are more employees travelling, but the Barometer results show that the number of travelers who take either purely international trips or mixed domestic and international trips has increased by 3% to 36% in 2014. The number of travelers taking only international trips has increased to 13% up from 8% two years ago (2012). The trend towards an increase in international trips is likely to continue as 34% of the interviewed organizations report plans to expand their operations outside China in the next three years, up from 19% in 2012.
“Despite concerns about the softening rates of economic growth, and the increasing cost of doing business in China, it appears as though company leaders remain optimistic and still recognize the value of their business travel investment,” Marco Pellizzer, Vice President of American Express Global Business Travel and General Manager of CITS American Express Business Travel. “There is a strong indication that companies in China expect to grow their T&E budgets again next year. Further, evidence suggests business leaders are increasingly broadening their business focus beyond China by expanding internationally, either with their manufacturing operations or marketing and sales efforts.”
Focus on hotel spending
This year, spending on airfares accounted for 23% of the average T&E expenditure, down from 25% in 2013 and 33% in 2013. Conversely hotel accommodation expenditure increased by 2% this year, to reach 23% of the average T&E expenditure.
“The decrease of air spending relative to other travel categories has been observed for several years and is similar to the trends reported in Europe. This year companies have been more focused on mandating the use of ‘lowest logical fares’, and have marginally increased usage of economy over premium class fares for certain sectors and routes. Also, train travel is becoming an increasingly popular option for business travelers in China,” said Mr Pellizzer.
Perhaps in recognition of the fact that spending on hotel accommodation is increasing proportionately, there is a growing trend for organizations to have negotiated rates in place for hotel properties or chains (83% of organizations in 2014 versus 78% of organizations in 2012) to try to reduce costs.
Travel managers have actually focused on driving adoption of corporate negotiated fares across all categories this year, in a further effort to drive costs down. When asked about the most important levers used to optimize their travel budget, ‘increased use of preferred suppliers’ ranked number one, which was a significant increase from last year when it ranked fifth. ‘Best buy’, ‘usage of fares with less flexibility’, and ‘advanced booking’ also continue to be among the top optimization levers.
Focus on the traveler
When reporting on their travel management priorities over the next three years, ‘traveler safety and security’ ranked number one. Some high-profile travel incidents, political instability in certain countries around the region and disease outbreaks across the world during 2014 have most likely contributed to an increased awareness amongst travel managers regarding their responsibility for their travelers’ safety and security. In addition, ‘travelers’ satisfaction’ jumped to the number four priority this year, up from the number six ranking last year.
Positively engaging with travelers and educating them on the importance of travel policy compliance has also increased in importance this year. When ranking travel policy compliance drivers, respondents have ranked ‘proactively communicate and educate travelers’ number one over more forceful and mandated approaches including ‘centralize T&E program management’ and ‘secure an executive sponsor’, which were respectively number one and two in 2013.
The value of business travel
The perceived value of the importance of traveling for business seems to be increasing with 33% of the interviewed organizations reporting they believe travel is a strategic investment, up from 25% of two years ago. Travel tends to be viewed as a strategic investment more so when the senior management is based in China (34%), compared to when management is based abroad (26%).
As for the primary purposes of business travel, most of them appear to be customer-centric, with 23% of business travel in 2014 done to maintain existing client relationships, and 23% to develop new clients. Corporate incentives and seminars (10%) and internal meetings (14%) are the least common reasons for business travel.
Mr. Pellizzer concluded, “As the internal and external business environment in China becomes more complex, leaders continue to recognize the importance of travel, and the return on investment it can bring their business. Though business leaders predict an increase in T&E budgets of 3.5% next year, it is clear they are continually looking for ways to maximize their business travel investment. Companies should continue to work with travel specialists and travel management companies who can advise on policy, help negotiate preferred rates, deliver reporting and data insights, and help realize travel program efficiencies.”
